California High Speed Rail – Who will pay for $40 billion?!

Of all the lines in the envisioned US high speed rail network, California is the one with the most momentum behind it. The state has started to fund the line that is designed to take passengers from San Francisco to Los Angeles in two and a half hours. Money is the biggest obstacle to realizing America’s rail modernization, but California is countering this problem by showing the value added these trains will bring to the state.

Concerns over cost is the principle argument against high speed rail in the US, but independent economic studies done on the feasibility of the project show that the line will generate $1 billion in surplus revenue annually after completion. Start-up costs for this infrastructure in the nation’s most populous state are estimated to be roughly half of what it would cost not to build the route. Highway and airport expansion would be much more costly and detrimental to the environment. These facts are pushing California to have the nation’s first true high speed rail at the current pace of development.

The price tag of the California High Speed Rail (CHSR) Corridor is $40 billion. The CHSR received a boost when a $10 billion dollar bond issue was passed in November 2008. Money from the stimulus bill is also expected. A portion of the $8 billion investment from the American Recovery and Reinvestment Act is expected to go to California as well as $1 billion per year from the federal government in grants over the next five years the US Department of Transportation.

The government will only partially fund CHSR. In total 25% to 33% of the line will be paid for at the federal level. For the project to obtain the vital funding required for its completion, private enterprise will be needed to come up with the rest of the cash in a private-public partnership (P3) arrangement.

This is a divergence from the way high speed rail has been developed around the planet. Governments around the globe have historically been the sole start-up investor in high speed rail, be they in Europe (Deutsche Bahn, SNCF) or Asia (Japanese Railways, China Railways). Even though the project has strong political backing at the federal level by President Obama, from governor Schwarzenegger and the mayors of California’s major cities, the option to fully back CHSR publicaly was not pursued vigorously. The search for investors can potentially delay construction. Under the current timetable the route is to be completed in 2020.

CSHR has benefited from the Golden State’s progressive attitude towards rail modernization. The 700 mile line that will maintain a sustained speed of 220 mph is planned to be a model for the rest of the nation’s high speed rail network and possibly wrest away the flagship title away from the Acela Express of the Northeast Corridor. It aims to be a world class service that will rival the already established networks of Europe and Japan.

The story says the line will generate a $1 billion surplus once completed. That doesn’t seem possible. How many passengers a year? Cost per ticket? Then, what are the operating costs per year? And the debt service? How about publishing a sample annual profit and loss statement for the first full year of operation, and the balance sheet? I’ve heard critics say that if you do the math, it will expose the folly of this undertaking and the long-term burden on taxpayers.

http://www.pentapublishing.com/online.html Fredrick Schermer

I am all for the High Speed Rail plan, but I wish for a better plan. This plan is being sold as the fast and the best, and it is neither. I created a much praised PPP with mainly visuals to show the underlying geo-economic realities in California (see website: http://www.pentapublishing.com/online.html ). Unlike Europe, politicans wield quite a bit of power in plans like HSR in California. The European Union has, for instance, as guideline that transit should look at ‘public tendering,’ a format that has shown good benefits in many cases (though not all) of improving transit ànd lowering costs. California is run too much by a single party, and it shows. The result is too much like what they would come up with in the old east-block. The right transit market mechanism (note: not the housing development market mechanism) would make the outcome of this plan better, faster, more realistic and more attractive.

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